Argentina on Wednesday lifted deeply unpopular restrictions on buying US dollars, aiming to put an end to a Byzantine monetary system that made it difficult for businesses to operate and spawned a booming black market.
The move, a campaign promise of Argentine President Mauricio Macri, was outlined by Minister of Finance Alfonso Prat-Gay.
The decision, combined with the lifting of export taxes on many agricultural products announced earlier this week, is to expose Latin America’s third-largest economy to international market forces in ways not seen for a dozen years.
Photo: AFP
“This system choked the economy for the last four years,” Prat-Gay said on Wednesday night at a news conference that was broadcast live. “We are now returning to normal.”
Attempting to shore up dwindling foreign currency reserves, the preceding administration of Argentine president Cristina Fernandez instituted restrictions on buying foreign currency in 2011.
It was one of many protectionist policies instituted during 12 years of governments led by Fernandez and her late husband and former president Nestor Kirchner.
The limits, locally called a cepo or “clamp,” led to dual exchanges rates. Over the past year, while the official exchange rate was fixed at about 9 Argentine pesos to the US dollar, on the black market a US dollar fetched as much as 16 pesos.
“The ‘clamp’ killed the supply of [US] dollars. It didn’t stop the demand,” Prat-Gay said.
While the change is likely to be celebrated by international investors and welcomed by many Argentines, there is also much fear about a sharp devaluation of the peso and what that might do to already soaring prices.
Annual inflation this year is estimated at about 30 percent.
Between the time Macri was elected on Nov. 22 and his inauguration last week, many businesses raised prices in hopes of protecting themselves against any devaluation. Other businesses, such as factories, simply shut down to wait to see what happens to the peso.
In recent weeks, economists have estimated the true value of the peso at about 14 or 15 to the US dollar. For the first time in four years, that was to be put to the test when markets opened yesterday.
There are concerns the lifting of currency rules could lead to a run on banks by Argentines eager to buy US dollars. The nation’s foreign reserves are just over US$24 billion, a very small amount for an estimated US$600 billion economy.
Without providing any details, Prat-Gray said that to insulate against this risk, his team had been negotiating with China and several financial institutions to quickly bring in several billion US dollars over the next month.
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